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INVENTORY CONTROL MODEL
In partial fulfilment of the requirement for the award of the degree of
MASTER OF SCIENCE(MATHEMATICS)2022-24
GOVERNMENT COLLEGE,SECTOR-9
GURUGRAM, HARYANA
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STUDENT DECLARATION
Student Signature
Sonam yadav
Class Roll no: 2205622
University SRN:221280560010
Master of science (Mathematics)2022-2024
ACKNOWLEDGEMENT
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Words cannot express my gratitude to my professor Mr. Vijayveer for his invaluable patience
and feedback. I also could not have undertaken this journey without my maths department
professors, who generously provided knowledge to me. This endeavor would not have been
possible without the generous support from them.
I am also grateful to my classmates and especially for their editing help, late-night feedback
sessions, and moral support. Thanks should also go to the librarians, research assistants, and
study participants from the university, who impacted and inspired me.
Lastly, I would be remiss in not mentioning my family, especially my parents. Their belief in
me has kept my spirits and motivation high during this process.
I perceive as this opportunity as a very important phase of my life. I will strive to use all the
gained knowledge in the best possible way and I will continue to work on improvement also for
my further career development purpose in this field.
PREFACE
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Inventory models form a crucial aspect of decision-making,
focusing on the timing and quantity of orders for goods.
CONTENTS
Student declaration 2
Acknowledgement 3
Preface 4
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Models / Title Page no.
Introduction
Introduction Inventory Model 6-12
Model I EOQ model with 13-16
uniform demand
Model II EOQ model with 17-19
different rate of
demand
Model III EOQ model when 20-23
shortages are allowed
Model IV EOQ model with 24-25
uniform
replenishment
Model V EOQ model with 26-31
price break/ discount
Bibliography 32
INTRODUCTION OF INVENTORY
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demands efficiently. Virtually every business, regardless of its size or sector, must
maintain an inventory to ensure the smooth and efficient operation of its processes.
While inventories are indispensable for business operations, their maintenance
incurs costs in the form of expenses on storage facilities, equipment, personnel,
insurance, and other related factors. Therefore, excessive inventories are deemed
undesirable as they impose unnecessary financial burdens. Consequently, there is a
need to control inventories in the most profitable manner possible.
In addressing this challenge, businesses employ various inventory control models,
with one of the prominent ones being the economic order quantity (EOQ) models.
These models provide a framework for determining the optimal quantity of
inventory to be kept in stock, striking a balance between the costs associated with
holding excess stock and the costs of ordering in smaller quantities.
By utilizing EOQ models, businesses can make informed decisions regarding
inventory management, ensuring that they maintain adequate stock levels to meet
demand while minimizing holding costs and optimizing operational efficiency.
This proactive approach to inventory control enables businesses to enhance their
financial performance and competitiveness in the market.
OBJECTIVES:
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INVENTORY CONTROL
Inventory control refers to the systematic regulation and management of a
company's stock of goods. It involves monitoring, organizing, and optimizing
inventory levels to ensure that products are available when needed, while
minimizing holding costs and the risk of stockouts. Effective inventory control
aims to strike a balance between meeting customer demand and avoiding
excess inventory.
Maintaining inventory is crucial for several reasons:
2. When to order?
Aspects of inventory. The varieties of factors related to these are placed below:
1. Inventory related costs
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Follows:
ii) Ordering cost: This is the cost incurred each time an order is placed.
iii) Purchase (or production) cost: It is the actual price at which an item
certain quantity.
iv) Carrying (or holding) cost: The cost includes the following costs for
maintaining the inventory: i) Rent for the space; ii) cost of equipment
or any other special arrangement for storage; iii) interest of the money
for the purpose; vi) insurance and depreciation; and vii) deterioration
v) Shortage (or Stock-out) cost: This is the penalty cost for running out of
These costs include the loss of potential profit through sales of items
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demanded and loss of goodwill in terms of permanent loss of the customer.
2. Demand
Demand is the number of units required per period and may either be
probabilistic problems.
3. Selling Price
The amount which one gets on selling an item is called its selling price.
4. Order Cycle
an order cycle. The order may be placed on the basis of either of the
continuous review.
b) The inventory levels are reviewed at equal intervals of time and orders
5. Time Horizon
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The period over which the time cost will be minimized and inventory
6. Stock Replenishment
The rate at which items are added to the inventory is called the rate of
7. Lead Time
The time gap between placing an order for an item and actually receiving
The lower limit for the stock is fixed at which the purchasing activities
The order in quantity that balances the costs of holding too much stock
D: Demand rate or demand per unit time (units of inventory demanded per year).
Ch: Carrying or holding cost per unit per period of time the inventory is kept.
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Cs: Shortage cost per unit of inventory.
The objective of the model is to determine an optimum EOQ such that the total
inventory cost is minimum.
Following assumptions are made for this model:
1. Demand D is constant and known.
2. Replenishment is instantaneous i.e. the entire order quantity Q is received at one
time as soon as the order is released.
3. Lead time is zero.
4. Purchase price or cost per unit is constant i.e. discounts are not allowed.
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Since lead time is zero and replenishment is instantaneous safely stock is
not required i.e. minimum level is zero. Also, demand is uniform. So, the
average inventory per cycle= ½(maximum level + minimum
level)=1/2(Q+0)=Q/2
Since the average inventory during any cycle period is Q/2, the average
inventory during the entire period is also Q/2.
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APPLICATION OF EOQ MODEL WITH UNIFORM
DEMAND:
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ng the average inventory level over the entire cycle. This involves
integrating the demand function to find the average demand and then
using it to determine the average inventory.
2. Calculation of Ordering Costs:
Determine the ordering costs by incorporating the variable demand into
the ordering cost formula. This adjustment ensures that the model reflects
the actual costs associated with placing orders during varying demand
conditions.
3. Optimal Order Quantity Calculation:
Utilize the modified EOQ formula that accounts for the changing demand.
The objective is to find the order quantity that minimizes the total cost,
considering both holding costs and ordering costs.
Here ,the stock will vanish at different time periods with a policy of
ordering same quantity for replenishment of inventory.
The total demand D is specified as demand during total time period T and
stock level Q is fixed.
D= D1 +D2 + …..+Dn
Where, 𝑇 = 𝑡1 + 𝑡2 + ⋯ + 𝑡𝑛
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Cost of ordering in time T is given by𝐷/Q 𝐶𝑜
The result is similar to the previous model with only difference that
uniform demand is replaced by average demand.
Total minimum cost = TC*+ cost of material where TC*= √2D/T× Co × C
Reflects Realistic Scenarios:The modified EOQ model with variable demand provides a more
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Complexity and Data Requirements: Implementing this model may require more complex
mathematical calculations and a deeper understanding of the demand variations. Accurate data on
patterns and adjust the model parameters accordingly. This adaptability is necessary for effectively
Technology and Tools:The use of advanced inventory management software or tools that can
handle variable demand scenarios can facilitate the practical application of the modified EOQ
model.
In summary, the EOQ model with different rates of demand within a cycle enhances the accuracy of
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MODEL III: EOQ MODEL WHEN SHORTAGES ARE ALLOWED
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ADVANTAGES OF SHORTAGES ALLOWANCE:
1. Cost Savings: Allowing for shortages in the Economic Order Quantity (EOQ)
model can lead to cost savings as it helps minimize holding costs associated with
excess inventory.
2. Flexibility: EOQ with shortages allows for more flexibility in inventory
management, accommodating situations where immediate fulfillment may not be
critical, enabling businesses to adapt to varying demand patterns.
3. Reduced Obsolescence Risk: By tolerating shortages, the risk of inventory
obsolescence is reduced, particularly for products with a limited shelf life or those
susceptible to rapid technological changes.
customer relationships.
Lost Sales Opportunities: Shortages might cause businesses to miss out on potential sales
opportunities, as customers may turn to competitors who can fulfill their needs promptly.
Complexity in Planning: Managing inventory with allowances for shortages can add
complexity to the planning process, requiring careful monitoring and coordination to avoid
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MODEL IV : EOQ MODEL WITH UNIFORM REPLENISHMENT
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MODEL V : EOQ MODEL WITH PRICE BREAKS/ DISCOUNT
variation of the traditional EOQ model that takes into account quantity
quantity that minimizes total inventory costs, considering the varying unit
Quantity Discounts: Suppliers may offer lower unit costs when the buyer
orders larger quantities. These discounts could be in the form of reduced per-
unit costs or fixed discounts for reaching specific order quantity thresholds.
Optimizing Total Cost: The EOQ with price breaks aims to find the order
quantity that minimizes the total cost, which includes both holding costs
(costs associated with holding inventory) and ordering costs (costs associated
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Multiple EOQs: Unlike the basic EOQ model, which results in a single
optimal order quantity, the EOQ model with price breaks may identify
about the order quantity that not only minimizes holding and ordering costs
Model or the EOQ model with a single price break, is a variation of the
Economic Order Quantity (EOQ) model that accounts for quantity discounts
unit costs at a specific order quantity threshold, known as the price break
point.
Key Components:
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Basic EOQ Parameters:
Demand Rate (D): The rate at which units are consumed or sold over
a specific period.
Unit Cost Before Price Break (C1): The cost per unit for quantities up
to the price break point.
Unit Cost After Price Break (C2): The cost per unit for quantities
beyond the price break point.
Price Break Quantity (Qb): The order quantity at which the unit cost
changes.
minimizes the total cost, considering the varying unit costs due to the
price break.
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The Economic Order Quantity (EOQ) model with two price breaks is an
aims to determine the optimal order quantity that minimizes total inventory
costs, taking into account variations in unit costs associated with two distinct
price breaks.
Key Components:
Demand Rate (D): The rate at which units are consumed or sold
over a specific period.
Unit Cost Before First Price Break (C1): The cost per unit for
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Unit Cost Between First and Second Price Breaks (C2): The cost
per unit for quantities between the first and second price break points
Unit Cost After Second Price Break (C3): The cost per unit for
quantities beyond the second price break point.
First Price Break Quantity (Qb1): The order quantity at which the
unit cost changes from C1 to C2.
Second Price Break Quantity (Qb2): The order quantity at which the
unit cost changes from C2 to C3.
OBJECTIVE :
The primary goal is to find the order quantity that minimizes the total cost,
considering the varying unit costs due to the two price breaks.
SUMMARY :
optimize the balance between holding and ordering costs. These models aim
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These models provide valuable insights for businesses, helping them strike a
the costs associated with ordering and holding stock. Extensions and
BIBLIOGRAPHY
257-262.
1335-1343.
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